Incentives and South Africa's automotive industry performance : a system dynamics approach

Abstract:

Investment in robotic automotive manufacturing and inherent electronics has played a
pivotal role in the growth and competitiveness of the South African automotive industry.
Government's offering of incentives was intended to lessen the cost of local industry’s expensive,
but necessary investment. Despite the growth, industry trade balance has been declining
systematically. To explain the apparent contradiction in industry performance, a model of South
Africa’s automotive incentives – including the Productive Asset Allowance (PAA) and the
Import-Export Complementation (IEC) – was developed. Model simulations reveal that, while
the IEC had a significant effect on the industry trade balance, the role of the PAA in this regard is
trivial. Ultimately, the study reveals that combining strictly investment incentives with other
‘non-investment’ incentives can have unintended consequences for the local automotive industry.